In Mobile Financial Services: Identifying Risks and Opportunities

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Many financial services companies have been relatively quick to jump on the mobile bandwagon, but the industry has a long way to go to capture the full potential of this rapidly evolving technology, according to a new report from the Deloitte Center for Financial Services.

Nearly all major banks, insurance companies and investment firms have mobile apps.¹ However, an alarmingly high percentage of consumers are unaware of financial services mobile apps available to them, according to a recent survey conducted by Andrews Research Associates on behalf of the Deloitte Center for Financial Services. Even if customers are familiar with them, many are hesitant to use such mobile services due to concerns over security, privacy and ease of use. “Those who do take advantage of mobile services are mostly conducting basic transactions they can already do online via their desktop or laptop. Companies have yet to fully leverage mobile technology to ramp up engagement with customers,” adds Mr. Eckenrode.

The dynamic nature of mobile technologies is likely to present financial services companies with two additional challenges. First, “mobile” is becoming less about a specific device and more about how to augment customer interactions with the multiplicity of technology options available now, with more to come in the near future. Second, mobile technology is reshaping customer engagement in a dramatic manner. Due to mobile’s ubiquity and ease of use, consumers are tethered to their mobile devices to an extent unmatched by any other technology in the past. For many, mobile is increasingly becoming the primary method of interaction.

Overcoming Obstacles to Usage

Val Srinivas

Mobile technology offers the convenience of access on the run, from virtually any location. “Yet, for many consumers, when it comes to conducting financial services over mobile devices, the advantages and conveniences offered by smartphones and tablets are being trumped by more negative considerations about the devices themselves and data security,” says report author Val Srinivas, banking and securities research leader, Deloitte Center for Financial Services, and senior manager, Deloitte Services LP.

For instance, one in four survey respondents said that the difficulty of seeing and typing on a small device screen was a limitation discouraging them from using their mobile device more often. Such factors—which were much less of a concern for those using tablets—were also cited, particularly by older consumers.

Meanwhile, 61% of those who do not regularly use mobile devices for financial services cite security issues as the prime reason. The next most common reason is a preference for doing business in person or with a human being over the phone.

Sam Friedman

Sixty-four percent of survey respondents said they were either extremely or very concerned about data security when banking over their mobile devices, compared with 54% of clients of investment management firms and 45% of insurance consumers.

“Such concerns have clear consequences, as three in ten respondents said that security issues had prompted them to severely restrict the use of mobile devices for financial services,” notes report author Sam Friedman, insurance research leader, Deloitte Center for Financial Services, and senior manager, Deloitte Services LP.

A little over one-third of respondents said they were insecure about completing financial services business transactions on mobile devices because they do not trust the security of the networks transmitting their data. When asked about their primary security concern, 28% cited the risk of their mobile device being lost or stolen and 21% cited the risk of identity theft.

“To boost adoption and set the stage for more ambitious applications, companies will likely have to take tangible steps to reassure consumers about the security of their mobile financial transactions,” adds Mr. Friedman. Along those lines, 80% of those surveyed would like the ability to remotely disable a lost or stolen device, while 72% would appreciate the use of biometric identification (such as fingerprints or eye scans) to enable a device for financial services transactions.

For banking security, more than half of the respondents like the idea of preclearing a limited number of people who could receive funds in a mobile payment, as well as setting a dollar limit on such transactions. Two-thirds supported leveraging the mobile device’s GPS for real-time, location-based fraud sensing.

Leveraging the Potential of Recent Mobile Technologies

The new generation of smartphones contains a number of innovative features—including high-quality cameras, voice commands, finger scanners, heart rate sensors and fitness trackers—which present financial services companies with tremendous new opportunities. For the most part, however, companies have just scratched the surface in using mobile technologies to connect and strengthen relationships with customers.

Going from High-touch to “V-touch”: One of the more entrenched beliefs in the financial services industry is the notion that certain services—especially those that are complex in nature, such as wealth management or annuities—can only be delivered using high-touch, person-to-person interactions.² However, some services currently delivered using the high-cost face-to-face method can now be offered virtually, using innovations such as video-enabled ATMs, voice-over-IP video services, video calls and mobile web conference apps.

There are a number of advantages to using these low-cost virtual-touch (v-touch) methods. First, the convenience of service delivery is highly appealing to customers. Second, virtual service can create a more personal touch and encourage more frequent interactions, possibly increasing stickiness and customer satisfaction. These v-touch channels could also result in cost savings due to higher productivity, decreased travel time by service staff and a reduced need for physical office space. On the other hand, v-touch could also drive greater demand for service time, leading to the need to maintain greater capacity to handle interactions.

Biometric for Security and Ease of Use: Some of the current devices in the market, including new generation smartphones, already have fingerprint scanners.³ What’s more, there is increasing evidence that financial services companies are using voice biometrics for authentication.⁴ In the next few years, more advanced biometric solutions in the form of palm-, iris- and facial-recognition features that are embedded in mobile devices are likely to emerge.⁵

According to the survey, nearly two-thirds of smartphone users said they would find it valuable to use biometric identification (fingerprint, voice scan or retinal scan) on mobile devices for ATM transactions and payments. “However, the comfort level with biometric security and encryption decreases as the amount of the transaction increases,” notes Mr. Srinivas. For instance, the proportion of consumers who are comfortable with this technology drops from 26% for a transaction size of $1,000 to 11% for a transaction worth $10,000.

New Ways to Use Locational Data: Global positioning systems and telematics (the use of sensors to track driver behavior) offer financial services companies another opportunity to enhance services. About half the smartphone users in the survey would allow their driving to be monitored via a mobile app in return for a price discount. Other applications in payments (validation and fraud detection, for example) could be enhanced using mobile locational data. However, financial services companies may face some obstacles in collecting and using this information. For instance, only about a quarter of the respondents indicated they would be willing to link the GPS function on their smartphone or tablet to bank accounts to make it possible to pay automatically for routine expenditures.

Where Do Companies Go from Here

Financial services companies have deployed many mobile offerings to keep up with technology advancements, and based on the survey results, many consumers have found value in their efforts. There appears to be much more to come. “This creates an opportunity for financial services providers to get ahead of the curve on mobility, while avoiding the potential of being wiped out by the tidal wave in mobile applications,” says Mr. Eckenrode.

About the Survey

The data presented in the report Mobile Financial Services: Raising the Bar on Customer Engagement, is based on an online survey of 2,193 respondents. Respondents were required to own a smartphone, be at least 21 years of age, have a minimum annual household income of $25,000 and have a bank checking account. About half of the sample was required to have life, home or auto insurance. Respondents were distributed across income levels and age groups and included more than 500 respondents from households with income above $100,000 per annum. The sample was weighted to represent the broader U.S. smartphone population.

Endnotes1. “Investment firms” include mutual funds, brokerage firms, investment/wealth management or retirement divisions of other institutions.2. Jake Kendall, Graham Wright, and Mireya Almazan, “New sales and distribution models in mobile financial services,” SSRN, March 29, 2013, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2241839.3. This report is an independent publication and has not been authorized, sponsored, or otherwise approved by Apple Inc. iPhone is a trademark of Apple Inc., registered in the United States and other countries4. Penny Crosman, “U.S. bank pushes voice biometrics to replace clunky passwords,” American Banker, Bank Technology News, February 13, 2014.5. Anne Eisenberg, “Reading your palm for security’s sake,” New York Times, December 28, 2013.6. Jeff Shaner, “Smartphones, tablets and GPS accuracy,” ArcGIS Resources, July 15, 2013, http://blogs.esri.com/esri/arcgis/2013/07/15/smartphones-tablets-and-gps-accuracy/.

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